Go ahead and get started here. Those I haven't met in the room, Daniel Imbro, the Transportation Analyst here at Stephens. Really pleased to be continuing our meetings today here at the Greenbrier. Thank you all for joining us. From the company, joined by CFO Michael Donfris and VP of Corp Finance and Treasurer Justin Roberts. So, gentlemen, thanks for being here.
Thank you.
Thank you for having us.
This will be a fireside chat. Louder? Yeah. So this will be a fireside chat. Please ask questions from the audience if you have them. We'd love to have more interactive discussion here, but I'll kick it off with a few and we'll jump right in. But, you know, I want to start at a little bit of a higher level. Many are familiar with Greenbrier, but some are less so. So maybe, Michael, could you spend a few minutes just on how you guys, who you guys are, where you fit in the broader ecosystem of transportation? And we'll jump into kind of business trends after that.
Sure. And I'll say a few words and Justin will jump in too. You know, we're, you know, a very large manufacturing company for rail cars. We're also a lessor of rail cars. We have a, you know, a footprint in in North America as well as Europe and Brazil. You know, we we're, we're coming off a very strong quarter, very strong year. And we're, you know, we're pretty excited about kind of where we're going. And, you know, from a transportation standpoint, you know, being a manufacturer of rail cars and a lessor of rail cars, you know, we're heavily involved in in really what's being transported across North America as well as what's being moved around in Europe and in Brazil. So with that, Justin, I don't know if you want to add anything to that.
I mean, I would say that we are one of the largest builders in the world. We think about the freight rail system in Europe, Brazil, and North America as kind of the circulatory system of the economy, and so for us, this is important because we're, you know, kind of a key driver, and overall, when we think about what's good for the space, it's also what's good for the macroeconomic economy in North America, so kind of with that, we can get into more of the questions and go from there.
Great. Well, we'll start a little bit staying high level. So you have a big leasing business and a big manufacturing business. You mentioned, I'm curious, you know, why are you like, what are the benefits of having both those businesses? Like, how do they interplay together? Has that changed over time with the strategy? Just curious how that kind of developed into this kind of portfolio you have.
Yeah, you know, and, you know, from a manufacturing standpoint, you know, manufacturing is really important to the company. You know, we look at it as our ability to to be a low-cost manufacturer of rail cars in North America as well as around the world. But we also have an origination engine for leasing. And so we have been originating leases for a number of years. And so we've also now started over the last few years building a leasing fleet. We also have the ability to take leased rail cars and and and sell them into a syndication process as well. And so really, when you think about the ecosystem of rail, you know, we're touching each one of the pieces of it. And, you know, we see that as a pretty attractive investment, attractive business to be in.
And maybe go into recent results. Last quarter, really solid. It looked like on top and bottom line. Can you dig into it a little bit more, Michael? What went better than expected and how the quarter played out? Anything go worse than you kind of anticipated in the quarter?
Yeah, you know, really it was a quarter that was just just extremely strong from a margin perspective. You know, so our strategy that, you know, we set out with growing our recurring business, our recurring revenue business, growing our our gross aggregate gross margin, and then driving towards a very strong ROIC. You know, we had a very, very strong quarter for that. Some of the things that we've invested in have been very helpful to margin in our manufacturing business. So, you know, those things kind of anniversarying and kind of playing their way through our footprint really helped us out in the fourth quarter. You know, we we also have a very strong backlog. So we ended the quarter of about $3.4 billion of rail cars in our backlog.
So, you know, that helps us get visibility around, you know, what we're going to make in this fiscal year in front of us as well as, you know, beyond. So it it was really, you know, a pretty positive way to end the year and, you know, a pretty, pretty strong momentum going into this fiscal year.
Justin, in your answer earlier, you mentioned you're one of the biggest global manufacturers. You cover a lot of different markets. You touch a lot of different markets in the world. Curious if you're noticing any disparate trends between Europe and North America. Like, how are the different market growth looking like by market around the world?
Yeah, that's a great question, and I would say Europe is stronger from a growth perspective, which is disconnected from kind of part of the economy there, and that's driven by a couple of different factors, including, you know, a decades-long underinvestment in the fleet, a shift in the EU to focus more on freight railcar versus truck, and so you see a modal shift there, and then kind of a shift in in focus to leasing there as well, and we've actually been, been building out a leasing business there over the last 18 months. Brazil is is a similar where we actually went through a period of modest weakness economically there last year. This year, we see customers that were investing in their infrastructure are now shifting back to invest in their fleets.
And so we see actually a pretty stronger outlook, even though it is a smaller market in Brazil overall.
Got it. And maybe digging a little more into the numbers, you know, if I look at the outlook for railcar deliveries, can you help just think about what is the right level of replacement in the market? Are we still kind of holding around there? And just how do you feel about that outlook for the new fiscal year going into?
You know, we feel pretty good about kind of where the market is, the market is going. You know, we see that, you know, the replacement level is probably in that 40,000-45,000 cars in North America, that market specifically. And so, you know, we're looking across the next few years where, you know, that that feels pretty good. And, you know, so as a builder and a manufacturer of rail cars, you get an opportunity then to size your footprint to really match that level of deliveries, that level of production. And so, as I mentioned earlier with the backlog, then I have visibility on what I really need to do. But the market then, you know, you prevent this huge increases and huge decreases by having this kind of the steady understanding of of what you can manufacture.
And then the other side of it, which is pretty exciting, is we can then focus on margin improvement because we have a pretty good visibility of what we're going to make. And so some of the initiatives around efficiency and, and insourcing have really kind of helped us out. And that's kind of what you're seeing play through in margins.
And then when we think about demand, is there any particular either good or bad call out among different car types on the manufacturing side or where you're seeing the most demand?
I think it's broadly balanced. You know, mostly, yeah, balanced across the different car types: boxcars, automotive, covered hoppers, gondolas. Intermodal obviously has been quiet over the last kind of two years, but we are expecting to see kind of a resumption in demand for that probably in the back half of calendar 2025, just as that kind of the traffic patterns have been improving in calendar 2024 there. So nothing is an explicit driver at this point, which is is very positive for us because it's not a, you know, prone to a boom and bust cycle from that perspective.
And you mentioned intermodal picking up maybe back half of next year. That volume has been strong. We saw a lot of stacked capacity. So is that the forecast that we'll just kind of begin to get tighter and need more next year? Or what are you hearing from the rails around that?
That is exactly what we're expecting. And I think what I would say is we're hearing that as well, where capacity has definitely tightened up. And ultimately, it just is kind of that is still viewed as one of the key growth drivers in the freight rail system in North America. So that's, you know, we'll see what 2025 brings, but that's where we're at right now.
That makes sense. And then we look at the backlog. You mentioned $3.4 billion. If you said that, Michael, you know, I think it did step down a little bit sequentially. Can you talk through the puts and takes? Was that expected? Was there anything surprising there in the order outlook that changed?
No, I wouldn't say it's surprising. You know, I think going through the quarter, you know, I think there were some, you know, some customers or, you know, basically saying waiting until the election kind of played through, and you've probably heard that in other comments as it's coming through, so that it probably wasn't a surprise. You know, when I look at it, it's a strong backlog, a large backlog historically for us, so, you know that, that gives us the visibility we want. But, you know, I think, you know, as we go into this next cycle, we're going to be watching that very, very closely, and, you know, we're we're going to continue to manage it.
You mentioned orders maybe picking up post the election. I think that's a theme we've heard from a few manufacturers. Inquiries have stayed high. Maybe orders. Inquiry to order flow through has not been as consistent historically. When you maybe talk to your customers, what are the reasons they're telling you as to why? Lack of visibility, maybe different challenging freight market. But do you think we'll start to see that historical flow through to orders resume? Now the election's behind us and it's the next year. How are you guys thinking that plays out?
Yeah, I think exactly. I mean, we definitely have seen an uptick in inquiries and some orders just since the election. So, you know, a couple of weeks at this point. And part of it is also we're aware that heading into the end of the year, there's usually CapEx budgets are exhausted and people are focused on getting budgets approved for the next year. So our, you know, at least from our perspective, November, December are usually a little quieter. January starts to kind of pick back up. But we have seen a shift in tone and conversation with customers since the election.
Maybe other than uncertainty since the election, there's a lot of still proposed. We don't know policy yet, proposed policy. When you listen to what's coming out of Washington or think about where you see potential tailwinds or headwinds in the proposed policy, how do you see anything out there right now that would affect rail's business next year?
Yeah, I think I'll take a shot. And then, Michael, please jump in. What we see broadly is, one, this is going to be more of a pro-business administration. And that's beneficial. Anything that is good for the consumer and is obviously better for the rail space because consumers consume and that's what the rail space does. From us, we're definitely paying attention to USMCA review that is slated for 2026 and any potential changes in trade relationships between Canada, U.S., and Mexico. Broadly, we're cautiously optimistic. But, you know, having lived through the first term and, you know, being on the West Coast, you wake up to a tweet with not a lot of detail and trying to figure out what things like border adjustability taxes could do.
And at the end of the day, it was we would say that we're very agile, flexible, and have a strong presence in in D.C. from a policy perspective and would expect to, as we have in the past, participate in any significant rulemaking. We believe that anything that's beneficial on the tax basis is going to be helpful. Then we'll see what happens from any potential tariffs.
You know, and just the pro-business side, you know, growth in manufacturing in the United States, the ability to move large quantities, you know, across the United States in rail cars. You know, I think it's just, it's good for the industry. It's good for the builders. It's good for the lessors, so you know, we're we're pretty excited about where this could go, and you know, and I think we're poised to take advantage of it, so it should be good.
Yeah, and I was going to say even before the election, it felt like the rails had been more and more focused on volume growth and really putting capital behind that, so do you think we would see that anyway be accelerating, even putting nearshoring, potential tailwinds aside? Has the customer tone the last couple of years changed around their need for equipment?
Well you know, I think, you know, just the, you know, the green focus of the ability to more efficiently move in rail cars versus other trends, you know, other transportation options. The Class I's focused on growing share, some of the information that is, you know, is out there that will improve the ability to do that. You know, I think there's been some very, very strong investments for the industry to take advantage of kind of where they are. And you know, it it it, I think it's going to be helped by this, you know, this phase we're going into. You know, wait and see. We'll see how it plays out.
Got it. Maybe look a little more at the quarter and the outlook. I think in the call, you noted you secured production for the first half of the year, if I recall correctly. Just curious, you know, what is the current lead time on a new railcar and how has that been changing as you manage and, you know, change your manufacturing a little bit?
Yeah. So we actually have production secured through, I'd say, probably about 75% of the year. So we've got some open space in the summertime, which is, our fiscal year ends in August. So this is a pretty typical space for us to be at this point for the year. And depending on your car type, I would say, you know, six-ish months is kind of an average. And certain car types go a little longer and certain are a little shorter, but six is a pretty good number.
Got it. And then maybe competition-wise, I think the industry has been a little more balanced, less speculative in recent years. Have you seen any changes in that trend or how do you see that shaping up into the new fiscal year from an order standpoint?
Yeah, people are maintaining rationality. So production rationality is important. Pricing rationality has been positive. And so I guess I would say we're cautiously optimistic that that will continue. We've seen that begin during the pandemic as consolidation occurred right before the pandemic. And since then, it's been, you know, relatively disciplined. And we're, you know, feel positive about that. I don't know if you have anything to add there.
Yeah, you know, I think with the strong, you know, the lessor market and the manufacturing, you know, companies that are there, I think what you're seeing is there's not a lot of rail cars available to, you know, to lease. You know, there's basically cars are out of storage. So there's a little bit, a little bit of demand. And I think what, you know, you're seeing, and I wouldn't focus on a little bit, but there's there's demand and there's, you know, there's a little bit of constrained supply. So, you know, it's not enough that I think you're going to see, you know, significant price swings, but I do think you're going to see, you know, the market to be healthy as it kind of goes forward. And, you know, that's certainly a benefit for all of us.
And so I'm not really sure I'm adding a whole bunch to what you said, but I think it's a pretty, you know, it's a pretty positive outlook.
Yeah, and maybe shifting over to the margin discussion a little bit. I know it's been a big focus for you guys. We're going to start at the high level, the consolidated gross margin expansion next year up a little bit. Can you just walk through the puts and takes? What are the building blocks to get to that year-over-year expansion? Maybe what are the biggest potential risks you see to achieving that when you look across the portfolio?
Sure. You know, when you think about aggregate gross margin for a company like this, you know, it's a combination of manufacturing and leasing. When we guided, we said 20 to 70 basis points of improvement year over year. You know, we exited at a very strong rate, but that was based on kind of the mix of what we're making. And so always we have to look at what's the mix of rail cars we're making, how many rail cars are we making in that period of time. We have some very, very attractive efficiency programs that are improving, improving our business. And then we've, we've shared some information around insourcing.
And so with our backlog, with our knowledge of what we're going to make, with our supply chain, we've been able to really aggressively look at what makes sense for us to do internally versus for us to source externally as part of the supply for the rail car. So, you know, it's it's been, you know, more than a year process. Some of it is going to continue into improving into this fiscal year as we guided. But, you know, I am expecting it to continue to improve at at that rate. But again, I would just say, you know, look at the mix of rail cars we're making. Not every rail car has the same margin. Not every rail car has the same price and cost of goods sold. So there is a little bit of a, you know, a little bit of a mix issue.
If we can talk about insourcing a little bit, you know, it's been a success. It feels like it's obviously helped. Any way you can help quantify maybe how much you've insourced or what the opportunity could be of how much you'd like to get to on a steady state? Can that stay if the market improves and orders pick up or we need to outsource more to keep up with demand?
Yeah. So we viewed insourcing as kind of a multi-stage process at our facilities in Mexico with the largest investment occurring in Central Mexico. That's what's coming online in the spring. So we've probably recognized or received a benefit of, you know, maybe $15 million-ish in fiscal 2024. We have talked about a long-term target of of between $35 and $50 million depending on production rates and types of cars being produced. So we do expect to recognize the rest of that in the back half of the year as facilities come online. Ultimately, at the end of the day, this has been very successful for us as we are taking control of a little bit of our own destiny and our supply chain, especially in Mexico.
And it's also been improving our working capital efficiency as we're, you know, historically when you outsource, you own the steel, you ship it to them, they take care of it and they ship it back and it adds weeks onto the year supply cycle. This way we have pretty immediate control and it cuts out on time from that investment perspective. So overall, we expect that this on an annual basis will be kind of $35 million-$50 million of cost savings and then the additional benefits from the working capital perspective.
That's great, and of what is still outsourced, if there's any in that process, I guess, how are your supply partners performing? Are there any hiccups that you're seeing or are aware of?
It's actually, they are performing well. There's definitely been a a stabilization in that part of the supply chain, and part of that is also as we brought, you know, more in-house, it helps to take some of that strain off.
Straight off then. And then maybe other than insourcing, which is obviously a huge opportunity and mix which varies quarter to quarter, you know, what are the other maybe puts and takes of gross margin investors should be aware of? Or what else can you control on gross margin? Maybe mix is what it is, but what else can you control to keep driving that margin expansion beyond this initiative?
You know, and I've been really impressed. I've had a chance to visit our Mexico facilities and our our European facilities. And what you see is this this this interest in controlling cost and reducing the time it takes to make a single rail car. And so, you know, we've established metrics across the company where we're tracking the performance. We're benchmarking across, you know, different plants, but different countries as well and saying, what do they do well and can we do that somewhere else? And and so there is, you know, a constant effort to, you know, continue to kind of think through how do we be the, you know, how can we be the low-cost manufacturer? But it's efficiency. It's continuing to think through insourcing. You know, if insourcing doesn't make sense in some areas, maybe it's outsourcing, you know.
So it's it's it's taking advantage of what you have the ability to control. And it's it's pretty exciting as you talk to the workforce.
You mentioned Mexico a few times, the last few answers. I think you mentioned in the prior administration or prior term, there were some hiccups. There's been hiccups the last couple of years at the Mexican border. I'm just curious, how is the flow of goods across the border right now? Anything to be aware of as we head into year-end and next year that you guys see as a risk on that front?
Yeah, I was going to say, I think broadly, border traffic is okay. The Class I operating in Mexico have been operating okay. Eagle Pass is kind of the one that you hear the most in the news. That one is congested, but it's better than it was a few months ago. Broadly for us, it's really more about the border has to stay open. And that's where you just see this ripple effect when they closed it in December. It just took months for things to work out. So right now, things are moving well. We have good flow back and forth across the border. And there's not been anything untoward or surprising that's occurring.
Yeah. And just adding a little bit to that, you know, we've, you know, we've got the footprint in in in the United States as well as in Mexico. And what I've been impressed with is just our teams working closely, you know, with with the government, but also just working with the suppliers to make sure we have the right supply at the right time at at our footprint. And, you know, it's it's pretty impressive in terms of how much goes into that and how successful they really are. And so, or we are. So it's it's, you know, it's one of those things that's part of the business. You know, you're just, you're managing it and just like everything else.
You know, continuing on that theme, you know, of manufacturing, how is labor today across your markets? Are there any pockets or areas of pressure that you're feeling that within the process?
Yeah, I would say that we we continue to see pressure in the United States. It is hard to hire and retain for this type of work. If you know of anyone who wants to become a welder, let us know. We're always, you don't need experience. We're willing to train you and teach you how to do it. You just have to pass a drug test. There is some tightness in Europe, specifically in Romania. And part of that is, as we're working on our footprint there, it is focusing on areas where we have a little more labor availability. And Central Mexico continues to have strong labor supply and fluidity in that part of the market. Brazil is, again, labor constrained a little bit as well, but we have right-sized that footprint. So it's a stable workforce.
Broadly, it is the United States, kind of the number one area where we continue to have challenges. But again, we are working to slowly just kind of grow and then retain this because it doesn't matter if you add 300 people, if you lose 250, it's maybe only need to add 100 and try to hang on to 90 of them and kind of do this in a more just kind of constructive and proactive approach versus, and part of this again is avoiding the yo-yoing of running up 1,000 people and then laying off 500. We don't do that anymore, which has been positive.
You know, one of the.
Do you lose people like that because of failed work tests or better wages out of the business?
When we lose people like that, so that's a great question. And part of it is, frankly, it's hard work. And when you think about repairing cars, building cars in, you know, August in Arkansas, it's not always the most pleasant environment. And so what we see is getting people up to speed as quickly as possible. But for us, the biggest turnover is the first two weeks. And we hear this is too hard. And they may make a little less money, but they may go work inside a warehouse. They may go work in a Walmart. But there is definitely a group of people that are interested in this type of work and a career. And then it's a matter of finding what matters to them because you want to pay a strong wage, provide benefits for them and their family.
But sometimes it's also, is it the environment that they're in? What are they looking for? What really matters to them, and that's been a key focus the last, I'd say, 12 months is understanding what matters to the people. Because it's easy to say it's scale, it's wages, it's it's, you know, work environment, but it could also be wages, it could be benefits, it could be, you know, we're going to give you two sets of boots a year instead of just one. It's trying to really sit and listen to them with what matters and what's realistic.
And in some of the locations, we actually have started welding schools. So, you know, you get folks that can see what the work is going to be like. They can interact with different team members and then they learn, you know, they learn from it. And, you know, those employees, once they get qualified, then can just jump in and, you know, it's a way of kind of addressing that and giving them an idea of what it's going to be like when they actually work there. So.
And it's also just make it a better environment when possible. Cooling stations, water stations, just things that, you know, I would just say politely, being in an office environment, I don't think about. But when you're in a big either open space or a factory of some kind, it may not be the most climate controlled from that perspective. So, you know, part of that is solving the problems that you can.
Yeah.
Let's talk about the lease fleet and adding on for three to four years. What are you finding? Are you leasing?
Could you repeat the question just for the webcast?
Yeah. So the question is, what have we kind of learned and seen and how's the growth of the leasing business occurring? And I think I would say it's going well. We're doing it in a very kind of programmatic and structured approach, a disciplined approach. Part of our goal is to invest kind of a net around $300 million a year. And we've been successful in doing that. But again, it's focused on not getting over-concentrated in any one car type or commodity, but doing it in a way that makes sense from a a kind of slow, just ratable approach to it. What we've seen is, I mean, this has been a good environment for us from that perspective because lease rates have been very, very strong. The overall market has been very receptive.
And for us, having been a strong originator of leases for a number of years, it just means we keep more on our balance sheet ultimately. And what we've seen is it's allowed us to improve the consistency of earnings and cash flow, but then also it's been beneficial on from a customer retention perspective: increased touch points. And I think from my perspective, and Michael, I mean, please jump in obviously, but it's it's helped to just provide consistency and stability in the business to offset some of the puts and takes in other parts of the business as well.
I guess my final question is, monitoring all your free cash flow is helpful. I guess you're very happy with that. It sounds like you are.
Well, the question is, you know, cash generation is being put into investing in the leasing business. And so for us, this has been a good use of cash, although when you take a step back and you think about, you know, you leverage a leasing asset 75%, and then when you think about the fact that we're actually building the asset ourselves, the actual equity that we contribute is a little less than that. So we've been able to grow this part of the business. We leverage it on a non-recourse basis. We are then using cash generated from the other parts of the business to continue to pay a dividend, be prepared for any opportunistic kind of share repurchase activity or M&A activity. But we've been delevering the recourse debt as well.
So for us, it's been growing a higher margin part of the business, delevering the recourse part of the business, and then focusing on being able to drive operating efficiencies. But this has been a, I think we felt positive about how this has trended the last few years.
I have a question on this. How long do the leases are, and what would you prefer, and what would you be buying?
That's a great question, Rudy. And the question is, you know, talk about the length of term of your leases. And so we would say most leases we're writing, depending on the car and the car type or car type and commodity, are five to seven years. Many of them are up to 10. And some of the, it is, you know, what do we want versus what our customers want? Well, in this type of a market, you want longer terms from our perspective, right? The longer you can lock in a lease rate is when it's a stronger lease environment is better. When it's a, what we would say is a weaker rate environment, we'd want shorter terms, right?
Some of our customers would love shorter terms right now, but some of them are a little more interested in the certainty of having a car intact for 10 years. And so we actually have a lot of customers come to us and say, "I want seven-year term or I want a 10-year term." And they want the visibility that that provides.
Maybe we can continue on the lease discussion. You know, I'd love to hear, just maybe an update on how lease rates are trending. That's been a very strong backdrop for a while here. But is anything changing in that market or how does your outlook into the new fiscal year, you know, contemplate that changing?
Sure, and I'll jump in on this one. You know, we had a really strong fourth quarter as we talked about in terms of lease rates rising. We do expect lease rates to rise in fiscal year 2025 as well. I think, you know, we still have probably in the neighborhood of 50%-60% of our lease fleet to, you know, kind of reprice as it comes up for renewal. You know, and we do plan to have kind of a, we do have a staggered lease renewal structure. It's part of the attractiveness of having the ability to choose what you put into your lease fleet versus what you may end up syndicating out of your lease fleet. So you can kind of manage your concentration. You can manage when the leases, you know, come due, but it's also based on car type, you know.
If you think about what's happened, you know, rates have risen. You've heard from other lessors and, you know, that rates continue to come up. To a certain extent, you know, we have a bit of a room to run here. It's anyone's guess if it's going to continue to go up and up and up. From an attractiveness standpoint, you know, there's not a lot of cars that are available to come out of storage. We expect that demand will continue to increase at this replacement level. As special car types are needed, you know, and available, we kind of expect this environment to be, you know, attractive forward.
You mentioned the staggered maybe repricing. Can you remind us just how many, how much of the fleet you reprice per year? Then, you know, what are the factors that you're looking at that would be a leading indicator that lease rates may begin to fall looking forward?
Yeah. So we've, over the last, I'd say, two years, and then what we expect to reprice this year will be around 40% of the fleet is repriced. So, and so then, as Michael said, 50%-60% or 60% is scheduled to reprice over the next few years. And when you think about leading indicators of lease rate decreases, I really think it's going to be driven economically about kind of what is, what are you seeing broadly in the economy? What is, you know, GDP doing? What is rail traffic doing? And then that will translate very quickly into demand. And then at the end of the day, it really comes down to, is our cars going into storage? Are they coming out? What's the, you know, is it more seasonal versus, so there's kind of several different leading indicators, but interest rates play a part as well.
But broadly, it's this kind of, you just think about, is the economy, what's the direction the economy is moving in?
Can you tell, I mean, previously short leases when you started this business and that's why you're having to reprice now, but is it in terms of extending to 7-10? I'm a little confused that you started four years ago buying so much that it would have meant to be repricing it too high for one year.
Yeah, that's a great question. So just to clarify, we, ironically, Greenbrier started, I think, like 40 years ago as a leasing company. And so there's always been a component of leasing to our business, but we would say that for the first several, first couple of decades at least, but until, say, 4-5 years ago, we were not growing that part of the business as in keeping assets on our balance sheet. And so we've always had a small number of assets on the balance sheet, probably, you know, 5,000-8,000 cars, maybe up to 10,000 cars. And so we were always underwriting a lot of leases, but we would be selling the cars and the leases attached and call that syndication. And so those leases in a, you know, for much of the 2010s, those were 3-5-year leases.
Then what we've seen come out of the pandemic is three- to five-year leases are around now five- to seven-year leases with some, as I said, customers preferring certainty and going for 10. Does that answer your question?
Yes.
Okay. Great.
Question.
Think back, oh yeah, please.
You asked a question about more rational industry. I'm trying to tie in. It seems like you and one of the other manufacturers is, I think, a leasing business in industry. How much has that led to more rational? Really, this is a great setup with, you know, a big chunk of your portfolio under-market and locked rates going up. I'm just trying to get the interplay of, you know, if someone came to you, another leasing company came to you with a big order, what do you think about that?
I think somebody used the word frenemy earlier, right? I think for us, it's bifurcating between, okay, so if a leasing company comes and wants to, you know, place a large order, we will, you know, look at the order in a way that makes sense and we're not going to do anything that is a negative from that perspective to chase their customer or anything like that once you get car marks. What I would say is this is a small universe of builders, small universe of suppliers, and at the end of the day, our operating lessor customers have gotten used to a certain amount of friendly competition, and for us, this has been a place of we're not going to become a, we're not targeting or planning to become a 100,000 car lease fleet.
We're targeting 20,000-25,000 cars if we invest over a kind of a five-year period. So for us, we view this as a way to help balance our business and remove some volatility from our earnings. But they would say they don't view us as a significant competitor in the leasing business at this point. Does that answer your question or?
Yeah, I guess I'm also trying to think about the robust nature of the cycles that are coming cars to build and where should we expect the higher troughs and lower peaks because the leasing businesses that are owned by the manufacturers are huge too.
I think what I would say is what we expect, and part of this is frankly in North America, things are going to be, you know, stable. Does that mean 35-45,000 cars a year? That range seems pretty reasonable at this point. I would say anything above maybe 50-55,000 at the most is academic because there's just not the labor to build the cars anymore, much less not a ton of really excess capacity to do that. There was a lot of capacity removed over probably the last 12 years, but there was capacity explicitly removed in the pandemic that was usually it's mothballed. You turn out the lights, make sure you have security. But a lot of this capacity was actually equipment shipped out, rail spurs were removed, and this was turned into a more typical type of fabrication or factory.
So that factory, that capacity is gone effectively. And so we believe what it seems like is we're entering this period where you're really not going to be able to take these huge 10,000-15,000 car orders for delivery over a shorter period, as we've seen in the past, because you just can't build the cars anymore. Yeah.
Michael, if I go back to one of the growth things you guys, I think, have leaned into the last few years, growing services, I think, has been something you've really wanted to do. I guess how much of that is parts and service on that versus leasing? And can you just talk about how the success has been, how the customer adoption has been on those services?
You know, and when you look at where the footprint is for Greenbrier, we're, you know, and I'm mostly talking about, you know, North America or the United States right now. But, you know, as you look at it, we have maintenance and services capabilities almost across the United States. We're very well positioned there. We have visibility into our management services platform where we have a pretty good idea, you know, around what's requiring maintenance and where it can be placed. You know, we're in the wheels business, so we're very strong from that, from a component standpoint and in the parts business. And so it is a, you know, it's an attractive part of our portfolio. And, you know, we look at it as we can do the work for ourselves at cost.
So for our rail cars and for the, you know, the rail cars we manage, we can help kind of make sure that happens in a very efficient way. But we also have the ability to possibly grow in that area too. And so it's, you know, it's a very attractive business for us right now.
That's great. Maybe a couple more coming up on time here. Just from a balance sheet standpoint, you touched earlier a lot of the cash is going towards growing the leasing business, but what are the other priorities for it? You mentioned M&A briefly, Justin. What are you guys looking for in targets, if at all, as you're assessing the backdrop?
I think for us, our biggest priority right now in the business is getting the business kind of right-sized and similar to what we did in 2023 is, you know, taking a look at the different facilities, the different factories globally and kind of saying, okay, what do we need? And is it, you know, kind of focusing on what's core versus non-core? And then part of that is also capacity rationalization and identifying kind of that right kind of production for North America, Europe, and Brazil. Now, think about transactions. We are a company that has always done, you know, transactions in our history. It's part of our DNA. But what I would say is, you know, a little more focused on improving and maximizing the footprint and the revenue that we generate now and then start focusing more on kind of growth and expansion.
It's going to not be, you know, manufacturing necessarily. It's going to be aftermarket parts, services, and other, you know, kind of packages you may be able to put together broadly. And again, you think about return of capital to shareholders with dividends, opportunistic share repurchases, and periodic evaluations of kind of dividend policy and growth there, trying to create a little more of a stronger framework for all of you to be able to kind of understand how we think about it.
That's great. Well, maybe just as we wrap up, you know, Michael, Justin, what's something you want to leave investors with or what do you think based on your meetings is still misunderstood about the Greenbrier story and where you can help add clarity there?
I was going to say I'll take a shot, but I want Michael to get the last word. So yeah, I think, I mean, broadly, this is a company that's gone through a generational shift over the last two years with, you know, our leadership team retiring and kind of stepping in and have some internal candidates, have some external people who come in and provide different fresh perspectives. This is a company that is working to evolve and grow to be the next kind of the next stage of profitability expansion, and at the end of the day, it's, I'll say politely, this isn't your father's Greenbrier anymore. This is a new and I would say exciting place to be where we're focused on growing the business, making the most of what we have, and then also laying out targets, committing to things externally, and then achieving those.
That's really well said, really well said, Justin. You know, five months in, this is an exciting company. You know, you look at the ability to shape a lease fleet. And with the origination engine the company has, you know, we have the ability to kind of manage this the way we want to manage it. And so, you know, as you kind of look at that, it's an exciting time to be part of Greenbrier and being involved with Greenbrier. And then from a manufacturing standpoint, being a global manufacturer in markets like Europe and having, you know, kind of the ability to see where that's going and to be able to participate in that. And then, of course, in North America with, you know, maybe some of the really exciting things that are going to happen in North America being, you know, a heavy, heavy participant in that.
Then just, you know, from what I see from the leadership team and just visiting, you know, I was in Mexico and visiting the Mexico plants just a little bit ago and just the excitement of the teams to really get better every single day to improve efficiency, to reduce costs, to make sure we're delivering customer requirements on time. You know, that on a backdrop of, you know, this idea of investing in products that make, you know, make our customers' lives better. It's a pretty exciting company to be involved in. I'm, you know, I'm really excited about where the future is. Looking forward to it.
It's a great place to leave it. Thank you guys for joining us. Thanks everyone for your participation.
Thanks, Daniel.
Thank you.
Thanks, everyone.